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Two big legal questions about AI in China’s Fintech Markets

Two big legal questions about AI in China’s Fintech Markets

AI has been on fast track in China with the rapid take-off of the sharing economy. One can rent anything from basketballs to apartments, umbrellas to songs. In the financial markets, top Chinese internet companies have been deploying AI in the investment decision making process. In the coming years, AI is expected to step up its engagement in the investment business along two paths: robotic assisted wealth management and big data powered robot analysts.

by Wu Ye.


1) AI Innovation and Chinese Financial Regulation: Promoting, or Conflicting?

China’s traditional financial industry is dominated by the government. However, it now needs to face Fintech’s disruptive potential and its bottom-up approach to innovation. China’s financial laws, mostly aimed at traditional state-owned financial institutions, are found wanting when it comes to regulating the emerging Fintech market. But with the development of Fintech, the market has relied on self-regulation much more than external legal supervision. Both lawmakers and regulators in China are observing the market’s trend with a prudent attitude. At present, the regulator prefers promoting Fintech markets by standardizing the code of practice rather than constraining the market. For example, the regulation on Robo-advisors mainly focuses on how to implement the principle of suitability. This means that the regulator requires Robo-advisors to report the main parameters of their AI models and details on their asset allocation methodology. In addition, the inherent shortcomings and related risks of artificial intelligence algorithms must also be reported.

2) The Battle of Data Ownership: Investor Protection, or Market Promotion?

“One who owns the customers’ data, is the winner of Fintech market.”

Fintech has the potential to make use of data in order to circumvent the problem of information asymmetry in financial markets. In a way, financial products are various combinations of data. The core competence of Fintech rests on AI’s ability to design and crystallize different permutations and combinations of data.  This is the reason why most of the enterprises which are keen on Fintech in China are the large internet companies. For example, Alibaba owns e-commerce transaction data of more than 100 million Chinese individuals. This allows them to easily aggregate credit data which traditional banks can’t. Data being the core resource for Fintech has triggered a battle for its ownership in China. There is little clarity on who owns the data. Is it the internet companies, e-commerce consumers or the government?The stalemate is yet to be broken and no consensus has yet been reached. The problem is complex, encompassing not only data ownership but also data privacy (i.e how consumers’ personal information can be effectively protected). This was also the reason for the Facebook scandal. Zuckerberg had previously assumed that if Facebook gave people tools, it was largely their responsibility to decide how to use them. As a result, many individuals had their public profile information “scraped” and matched to their contact details, which had been obtained from elsewhere.


Similar to Switzerland, China’s traditional financial sector is mainly focused on banking. But with the rapid expansion of Fintech, the traditional banking business has been threatened. However, this is not only a challenge for the traditional financial business, but also a great opportunity. Switzerland, as one of the world’s key financial centers, is trying to improve its competitiveness by lowering the market access threshold for Fintech companies. FINMA came up with the ideas for the regulatory sandbox and the dedicated FinTech license. FINMA has also issued guidelines for ICO operators. The Chinese government is eager to learn and draw lessons from the positive policies of other governments.


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